Banc of California(US:BANC)2025-08-08 20:16PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) The company's total assets grew to $34.25 billion, with net earnings increasing to $82.0 million for the six-month period Condensed Consolidated Balance Sheets Total assets rose to $34.25 billion, driven by loan growth, while stockholders' equity slightly decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $34,250,453 | $33,542,864 | | Total Loans and Leases Held for Investment, net | $24,016,549 | $23,542,303 | | Total Investment Securities | $4,725,142 | $4,700,761 | | Total Liabilities | $30,823,610 | $30,042,915 | | Total Deposits | $27,528,433 | $27,191,909 | | Borrowings | $1,917,180 | $1,391,814 | | Total Stockholders' Equity | $3,426,843 | $3,499,949 | Condensed Consolidated Statements of Earnings Q2 net earnings fell to $28.4 million due to higher credit loss provisions, though six-month earnings improved year-over-year Key Earnings Data (in thousands, except per share amounts) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Interest Income | $240,216 | $232,364 | $229,488 | | Provision for Credit Losses | $39,100 | $9,300 | $11,000 | | Noninterest Income | $32,633 | $33,650 | $29,792 | | Noninterest Expense | $185,869 | $183,653 | $203,643 | | Net Earnings | $28,385 | $53,568 | $30,333 | | Diluted EPS | $0.12 | $0.26 | $0.12 | Six-Month Earnings Comparison (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Interest Income | $472,580 | $458,590 | | Provision for Credit Losses | $48,400 | $21,000 | | Net Earnings | $81,953 | $61,185 | Condensed Consolidated Statements of Cash Flows Cash decreased by $148.7 million due to loan growth, partially offset by increased deposits and borrowings Six Months Ended June 30, 2025 Cash Flow Summary (in thousands) | Cash Flow Category | Amount | | :--- | :--- | | Net cash provided by operating activities | $77,836 | | Net cash used in investing activities | ($878,282) | | Net cash provided by financing activities | $651,786 | | Net decrease in cash and cash equivalents | ($148,660) | - Significant financing activities included a net increase in interest-bearing deposits of $615.3 million and proceeds from borrowings of $700.0 million, which were offset by common stock repurchases of $151.8 million and repayments of borrowings of $176.2 million30 Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, segment information, and subsequent events like dividend declarations - The company operates as one reportable segment, Commercial Banking, with the Chief Executive Officer identified as the Chief Operating Decision Maker (CODM)233234 - Subsequent to the quarter end, on August 8, 2025, the Board of Directors declared a quarterly cash dividend of $0.10 per common share and $0.4845 per Depositary Share for preferred stock242243 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth, a strategic loan sale, stock repurchases, and stable capital ratios - In Q2 2025, the company initiated a strategic loan sale process, reclassifying $506.7 million of loans to held for sale, resulting in charge-offs of $36.9 million and an incremental provision expense of $26.3 million253254 - The company repurchased 11.5 million shares for $150.0 million in the first half of 2025 under its stock repurchase program, with $150.0 million remaining under the authorization as of June 30, 2025251277 - Q2 2025 results included a one-time non-cash income tax expense of $9.8 million due to the revaluation of deferred tax assets related to recent California state tax changes275277 Results of Operations Q2 results show increased net interest income, a higher provision for credit losses, and an elevated effective tax rate - Net interest income increased by $7.9 million sequentially in Q2 2025, driven by higher loan balances and yields, with the net interest margin expanding by 2 basis points to 3.10%286287 - The provision for credit losses was $39.1 million for Q2 2025, a sharp increase from $9.3 million in Q1 2025, including $26.3 million related to loans transferred to held for sale296297 - The effective tax rate for Q2 2025 was 40.7%, significantly higher than Q1's 26.7%, due to a $9.8 million non-cash expense from the revaluation of deferred tax assets309310 Balance Sheet Analysis The balance sheet reflects loan and deposit growth, improved credit quality, and a strong liquidity position - Total loans and leases held for investment increased by $464.2 million to $24.2 billion at June 30, 2025, from year-end 2024321 - Credit quality metrics improved, with nonaccrual loans decreasing to $167.5 million (0.69% of loans) and special mention loans decreasing by $435.7 million from year-end 2024343349 - Total deposits grew by $336.5 million to $27.5 billion since year-end 2024, with noninterest-bearing deposits representing 27% of total deposits350 - The company's available liquidity of $14.8 billion provided a coverage ratio of 196% for uninsured and uncollateralized deposits as of June 30, 2025351 Regulatory Matters and Capital The company remains 'well capitalized' with strong capital ratios despite a slight decrease due to stock repurchases Consolidated Capital Ratios | Ratio | June 30, 2025 | December 31, 2024 | Minimum for Well Capitalized | | :--- | :--- | :--- | :--- | | CET1 Capital Ratio | 9.95% | 10.55% | 6.50% (Bank) | | Tier 1 Capital Ratio | 12.34% | 12.97% | 8.00% (Bank) | | Total Capital Ratio | 16.37% | 17.05% | 10.00% (Bank) | | Tier 1 Leverage Ratio | 9.74% | 10.15% | 5.00% (Bank) | - The decrease in capital ratios during the first six months of 2025 was mainly due to stock repurchases, lower net earnings, and growth in risk-weighted assets360 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages a near 'neutral' interest rate risk profile using NII and EVE models and mitigates risks with derivatives Interest Rate Sensitivity Analysis as of June 30, 2025 | Change in Interest Rates | EVE Change (%) | NII Change (%) | | :--- | :--- | :--- | | +200 bps | (5.7)% | 2.0% | | +100 bps | (2.7)% | 1.1% | | 0 bps | -- | -- | | -100 bps | 3.1% | (0.7)% | | -200 bps | 4.2% | (1.8)% | - The company's interest rate risk profile was considered near 'neutral' as of June 30, 2025400 - When considering rate-sensitive noninterest expenses, the company's overall Earnings-at-Risk profile is considered 'liability sensitive', a risk mitigated by entering into $1.0 billion notional of interest rate collars403404 Item 4. Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures with no material changes in internal controls - Management concluded that disclosure controls and procedures were effective as of the end of the period406 - No changes in internal control over financial reporting occurred during the second quarter of 2025 that materially affected, or are reasonably likely to materially affect, internal controls407 PART II. OTHER INFORMATION Item 1. Legal Proceedings Ongoing legal actions are not expected to have a material adverse effect on the company's financial condition - The company is involved in various legal actions incidental to its business, but management does not expect them to have a material adverse effect on its financial condition409410 Item 1A. Risk Factors No material changes have been identified for the risk factors previously disclosed in the Annual Report on Form 10-K - No material changes to the risk factors disclosed in the company's Form 10-K have occurred411 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 8.9 million shares in Q2 2025 under an expanded $300 million stock repurchase program Common Stock Repurchases for Q2 2025 | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | April 2025 | 8,811,011 | $12.65 | 8,809,814 | | May 2025 | 48,759 | $13.77 | 0 | | June 2025 | 119 | $13.97 | 0 | | Total Q2 | 8,859,889 | $12.66 | 8,809,814 | - The stock repurchase program was increased from $150.0 million to $300.0 million on April 23, 2025, with approximately $150.0 million remaining available for repurchase412413